Hundreds of passengers have been stranded in Bali after Indonesia said Tigerair did not have permission to operate some flights to Australia.
Flights between Bali and Australia will not run until at least Friday following the “new requirements”, Tigerair said.
Indonesia disputed Tigerair’s claim the rules were new, saying the airline only had permission for charter flights.
More than one million Australians visit Indonesia each year, with most heading to Bali, a popular holiday island.
About 700 passengers were affected by the cancellations on Wednesday, while a similar number will be grounded on Thursday, the airline said.
“We are working constructively with the Indonesian government to commence flying to Bali again as soon as possible and to work through the new requirements they have given us this week,” Tigerair Australia chief Rob Sharp said in a statement to the BBC.
“If the Indonesian government does not wish to honour the current agreement, we are asking them to give us a grace period so that we can continue to fly while we work through the new requirements together.”
Indonesia said Tigerair had permission to operate “charter flights”, not “regularly scheduled conventional flights”.
“However, we found out that Tigerair had sold regularly scheduled conventional flight tickets from and to Bali,” Bambang Ervan, a transport ministry spokesman, told the BBC.
“They have broken AOC129 requirements. Yes we have given them a notification this week that they have broken the requirements. But this doesn’t mean that these are new requirements, otherwise all other airlines would have been impacted.”
Tigerair said its current cancellations were made “to provide certainty and notice to our customers”, but added its five remaining flights on Friday were under review.
The budget carrier said Virgin Australia would operate two replacement flights from Bali on Thursday.
Australian traveller Sophie Kealley said she was stranded in Bali after her return flight to Perth was cancelled.
“We went to obviously check into our flight and they hadn’t even sent us an SMS,” she told the Australian Broadcasting Corp.
“We tried to get on the next Jetstar flight but they boarded the plane and then everyone was evacuated off the plane anyway.”
Other passengers told of their frustration on Tigerair’s Facebook page.
Mr Sharp said the airline would provide accommodation and refunds to affected passengers.
Mr Ervan said Indonesia was processing the airline’s new application.
Tigerair Australia is owned by Virgin Australia and based in Melbourne.
Reporting by the BBC’s Greg Dunlop and Jerome Wirawan